California Regulators Vote to Maintain High Utility Profits, Angering Customers
Despite growing concerns from customers about rising electric bills, the California Public Utilities Commission (CPUC) voted 4 to 1 to maintain the high profit margins of Southern California Edison and other major investor-owned utilities in the state. The decision has sparked outrage among consumer groups, who argue that the utilities’ return on equity has long been inflated.
The CPUC’s vote will result in a slight decrease in the profit margins of Edison and three other major utilities, with Edison’s rate falling to 10.03% from 10.3%. However, customers are unlikely to see a significant impact on their bills, as the utilities continue to invest in infrastructure and pass on the costs to consumers. According to Mark Ellis, the former chief economist for Sempra, the parent company of San Diego Gas & Electric and Southern California Gas, the utilities’ profit margin should be closer to 6%.
Consumer Groups Criticize the Decision
Consumer groups, including CALPIRG, have criticized the CPUC’s decision, arguing that it allows utilities to extract unreasonable profits from customers. “For too long, utility companies have been extracting unreasonable profits from Californians just trying to heat or cool their homes or keep the lights on,” said Jenn Engstrom at CALPIRG. “As long as CPUC allows such lofty rates of return, it incentivizes power companies to overspend, increasing energy bills for everyone.”
The CPUC’s decision comes as California struggles with some of the highest electric rates in the nation, second only to Hawaii. Edison’s electric rates have risen by more than 40% in the last three years, with over 830,000 customers behind on their bills, owing an average of $835 each. The commission’s vote was in response to a request from Edison and other utilities, who cited the need for higher profits to attract investors and mitigate the risk of utility-caused fires.
Return on Equity and Its Impact on Consumers
Return on equity is a critical factor in determining the profitability of utilities, as it sets the rate at which investors earn a return on their investment in the company’s infrastructure. Under the state’s system for setting electric rates, investors provide part of the funding for infrastructure development and earn an annual return on that investment over the asset’s life, which can be 30 or 40 years. According to a report by state legislative analyst Gabriel Petek, electric rates at Edison and other investor-owned utilities are 50% higher than those charged by public utilities, which do not have investors or charge customers extra for profit.
The CPUC’s decision has been met with disappointment from consumer groups and residents, who argue that the high profit margins are unsustainable and unfair to customers. “A profit margin of 10% on infrastructure improvements is far too high and will only continue to increase the cost of living in California,” wrote James Ward, a Rancho Santa Margarita resident. For more information, read the full article Here
Image Source: www.latimes.com
